ECB says it will ‘actively’ buy eurozone bonds

Jean-ClaudeTrichet, the president of the European Central Bank, said last night that the ECB would “actively” buy eurozone bonds in a sign that the bank is prepared to support Italy and Spain.

In a statement issued after an emergency conference call by members of the ECB’s governing council, Trichet said the ECB would “actively implement its Securities Markets Programme”. The programme allows the ECB to buy up eurozone government bonds as a way of supporting prices where there have been sudden market sell-offs.

Trichet’s pledge to use the programme is being widely interpreted by financial markets that the ECB will buy Italian government bonds. The decision to accept Italian bonds appears to have been taken after the Italian government announced on Friday it was bringing forward by one year to 2013 plans to balance the budget.

The statement said the ECB “welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies”. The ECB said that “decisive and swift implementation by both governments” was essential in order to “substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits”.

The ECB announced it was re-starting its bond purchase programme on Thursday last week (4 August). But the move led to disappointment on financial markets when it emerged that the ECB had only bought Irish and Portuguese bonds and not Italian paper.

The ECB’s stance was seen by the markets as a way of putting pressure on the Italian government to speed up economic reforms.

Statement by the President of the ECB

1. The Governing Council of the European Central Bank (ECB) welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.

2. The Governing Council underlines the importance of the commitment of all Heads of State or Government to adhere strictly to the agreed fiscal targets, as reaffirmed at the euro area summit of 21 July 2011. A key element is also the enhancement of the growth potential of the economy.

3. The Governing Council considers essential the prompt implementation of all the decisions taken at the euro area summit. In this perspective, the Governing Council welcomes the joint commitment expressed by Germany and France today.

4. The Governing Council attaches decisive importance to the declaration of the Heads of State or Government of the euro area in the inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.

5. It equally considers fundamental that governments stand ready to activate the European Financial Stability Facility (EFSF) in the secondary market, on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability, once the EFSF is operational.

6. It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.

Trichet and Mario Draghi, president of the Italy’s central bank, are reported to have sent the Italian government a letter setting out the economic reforms they wanted to see, including balancing the budget in 2013.

Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, France’s president, issued a statement on Sunday evening, saying they welcomed the “recent measures announced by Italy and Spain with regard to faster fiscal consolidation and improved competitiveness”. They highlighted the Italian authorities’ goal to achieve a balanced budget a year earlier than previously envisaged being “of fundamental importance”.

Financial markets are braced for a new bout of turmoil this morning as investors react to the announcement on Friday by Standard and Poor’s, a credit rating agency, that it was downgrading the US’ credit rating from triple-A, the highest level, to double-A plus.

Finance ministers and central bankers from the G7 group of the world richest nations held a conference call yesterday to discuss the situation on global financial markets.

pasbaxo

13-09-11 pasbaxo
Reducing public deficits by ECBs’ buying-up eurobonds is not possible
if the Governments do not trade them. This act is usually not considered as adequate to Governments’ budget management , planning nearly direct income and expenditure to fullfill public needs.

Posted on 13/9/11 | 8:12 AM CEST

pasbaxo

13-09-11 pasbaxo
Reducing public deficits by ECBs’ buying-up eurobonds is not possible
if the Governments do not trade them. This act is usually not considered as adequate to Governments’ budget management , planning nearly direct income and expenditure to fullfill public needs.

Posted on 13/9/11 | 8:12 AM CEST

pasbaxo

13-09-11 pasbaxo
Reducing public deficits by ECBs’ buying-up eurobonds is not possible
if the Governments do not trade them. This act is usually not considered as adequate to Governments’ budget management , planning nearly direct income and expenditure to fullfill public needs.

Posted on 13/9/11 | 8:12 AM CEST

pasbaxo

13-09-11 pasbaxo
Reducing public deficits by ECBs’ buying-up eurobonds is not possible
if the Governments do not trade them. This act is usually not considered as adequate to Governments’ budget management , planning nearly direct income and expenditure to fullfill public needs.